A growing number of Wall Street analysts don’t think Federal Reserve Chairman Alan Greenspan is leveling with the public on why he supports interest rate hikes.

Mr. Greenspan told the House of Representatives’ budget committee yesterday that American economic growth is accelerating after hitting a “soft patch” earlier in the year, and suggested that more increases are likely, perhaps as early as September 21.

In June, the Fed for the first time since 2001 raised the rate charged to banks for overnight lending 25 basis points to 1.5% from 1.25%, saying it would stick to its plan to raise rates at a “measured pace” to head off inflation as the economy expands.

One veteran Fed watcher, FTN Financial’s chief economist Christopher Low, said that the specter of inflation is probably worse than Mr. Greenspan is letting on.

Mr. Low said core commodities prices – such as lumber, steel, coal, and copper – as measured by the Commodities Research Bureau spot index, are up 20% over last year.

“Every manufacturer is paying up for these goods; many of them are beginning to pass their increased costs to consumers,” he said.

“I suspect that the Fed is trying to head off a fairly serious inflation problem,” he said. He estimated that when the increased raw material prices are fully absorbed by manufacturers and passed through to consumers, core consumer and manufactured goods would increase an average 4%-5%.

Mr. Low said that what tipped him off to what he termed Mr. Greenspan’s “unofficial view” was Fed officials backing away from assertions made in the winter that rate hikes were unlikely to occur without average monthly employment growth of between 200,000 and 300,000 jobs.

“Fed officials haven’t disowned the statements, but they don’t talk about the job creation argument anymore and not just because we haven’t seen those numbers being created,” he said. Now Fed officials use 4%-4.5% GDP growth as a reason for boosting rates.

Mr. Low also said there is “A dirty little secret to economic analysis today – No [American] economist has had to model and do analysis in an inflationary environment in 20 years.”

As a result, Mr. Greenspan, who is serving in his fifth term as chairman of the Fed’s Board of Governors, is afforded a wide degree of latitude in analyzing and commenting on something that few working economists are familiar with.

A hedge fund manager, James Altucher of First Angel Capital, said Mr. Greenspan is playing “a small game of deception” in making an argument that economic growth warrants a change in interest rates.

He said there are two arguments for Mr. Greenspan to boost rates, but only one could be given in official testimony.

The official argument is what Mr. Altucher calls the “pre-emptive strike on inflation” approach. This assumes that several months of strong labor gains – the unemployment rate is now at 5.4% – have created enough demand in the economy so that workers and manufacturers can get wage and price increases.

He said this argument is weak be cause the 1990s economy supported 4% unemployment “before succumbing to inflation.”

Mr. Altucher said the unofficial reason is Mr. Greenspan’s need to correct his excessive interest rate cutting from 2001-2003 in fighting the rapidly growing American economy.

He said that with rates so close to zero, should deflation become a problem, the Fed would have no options, which is similar in to the troubles plaguing Japan.